Clearwire: Janco Cuts to Hold; Investor Vote Looks Tilted to Sprint

By Tiernan Ray

It’s been a busy day for Janco Partners analyst Gerard Hallaren, who follows Clearwire (CLWR), and who started the morning off reiterating a Buy rating on the stock, arguing that “the auction’s not over” for the shares, only to reverse course this afternoon and cut his rating to Neutral as investors seemed aligned to endorse a sweetened buyout offer from Sprint-Nextel (S).

Clearwire stock started out soft, but ended the day up 4 cents, or 0.7%, at $5.08.

Clearwire, which provides broadband wireless data service in the U.S., has been the subject of a months long bidding war between Sprint, which already owns 51% of the shares, and satellite TV operator Dish Network (DISH). Yesterday, Clearwire’s board of directors reversed course, telling shareholders to vote in favor of a revised $5 per share offer from Sprint, and to resist tendering their shares to Dish for $4.40, an offer the board had endorsed only a week earlier.

Hallaren’s downgrade this afternoon follows a cut to Neutral yesterday by BTIG Research‘s Walter Piecyk, another analyst who had continually argued for a higher bid but who threw in the towel following the higher offer.

After initially thinking bidding could continue, Hallaren this afternoon noted that a group of funds representing 9% of the shares — Mt. Kellet, Highside, Chesapeake, and Glennview — have now said they will endorse the Sprint offer, giving Sprint support of 74% of voting stock, along with strategic investors Intel (INTC), Brighthouse, Comcast (CMCSA) and McCaw, who collectively hold 13%.

“Having heard higher informal indications from this shareholder group we are surprised by their action,” writes Hallaren. He thinks a court action to block the deal is possible but unlikely:

Admittedly, Sprint’s scares us. Fear caused us to miss the distance between Dish’s $3.30 and Sprint’s $3.40 bid for Clearwire. Given the new voting dynamic we believe another bidder would have to fight Sprint and Clearwire in court. Indeed, the judge hearing the case in Delaware Chancery court state in open court: ” . . . if I’m a plaintiff, I’m salivating in the situation here where, if you’ve got the confidence of your convictions — what I want to say is nothing I’m saying today is a comment on the merits. I think there are colorable claims here. Just because of the dynamic, it’s obviously a controlled transaction. So there is always a self-interest that could be involved . . .”

Notes Hallaren, “We continue to believe an orderly liquidation of Clearwire would bring shareholder’s more than $10 per share.”

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There are 2 comments

JUNE 21, 2013 5:03 P.M.

Hendrick wrote:

People seem to life in a dream world these days. A company is worth what somebody wants to pay for and what the shareholders accept to agree to the terms. Crest Financial made about five times the amount of their investment and still have not enough?
Dish should consider to purchase Leap Wireless which is valued at a fraction and will need spectrum in the future to grow. People don't seem to realize that the Dish spectrum is underdeveloped, not supported by any current hardware and worthless unless sold or deployed.

JUNE 21, 2013 8:14 P.M.

jbm1 wrote:

• 29 Mar, 05:10 AMReply! Report AbuseLike0
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DPSLComments (34)
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Concerning Sprint specifically, their actions over the past 2 years with Clearwire begs for a fairness review by the FCC and demands a complete deal fairness review by Delaware courts. Their actions have been a direct assault on the minority holders of CLWR with the sole purpose of a squeeze out merger and take-under. If allowed, every CEO will be incentivized to spin out a business, seek an IPO/secondary and then take back the company at a lower price with its new minority shareholder funds. Now that's not a whine, just the way it is.
18 Apr, 11:04 AM

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Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.